Abstract
Immigrants arrive with human capital accumulated in their source country. To bring this to life, immigrants invest in host-country specific forms of human capital such as learning English and becoming familiar with the host country’s institutions, production methods, and technical terms. As host country-specific skills are gained, the labor-market value of source-country human capital increases, and earnings increase. Immigrants with high source-country human capital but low skill transferability have the largest incentives to invest in U.S.-specific skills, as earnings and thus the opportunity cost of investment is low at arrival and the return to investment high. Holding source-country human capital constant, immigrants with high transferability have less of an incentive to invest in new U.S.-specific human capital. Thus, the IHCI model suggests an inverse relationship between entry earnings and earnings growth and implies that entry earnings cannot measure an immigrant’s level of source-country human capital.
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Notes
- 1.
Chiswick (1978, 1979, 1980) theorized that because of less-than-perfect international transferability of skills, immigrants initially earn significantly less than the native born with similar levels of education and age. However, immigrants invest in U.S. specific skills, which further lowers their initial earnings but results in high earnings growth with time in the United States. A corollary of Chiswick’s hypothesis for understanding earnings differences across immigrant groups is that, “The initial earnings deficiency, and the steepness of the subsequent rise in earnings, would be smaller the greater the similarity between the country of origin and the United States” (Chiswick 1978, p.899).
- 2.
Piracha, Tani, and Vadean (2012) find with the Australian Longitudinal Survey of Immigrants that occupation-education mismatches in the source country predict occupation-education mismatches in the host country. They argue that the mismatch in the source country indicates lower ability, as opposed to skills-transferability issues of those who migrate. Yet, what economists call a skills mismatch in an immigrant’s original country, might be more comprehensively defined as a constraint: individuals who choose to migrate may face constraints in their home country that they wish to escape by moving to less restrictive societies and starting again. Testing these alternative perspectives requires examining what happens over time to the earnings and human capital investment of the mismatched immigrants in their new country.
- 3.
The initial references for the four concepts are as follows: for the first concept: Chiswick (1978, 1979); for the second concept: Duleep and Regets (1994, 1999, 2002); for the third concept (Duleep and Regets 1992); and for the fourth concept, permanence is incorporated in the version presented in Duleep and Regets (1999). With the parameter τP, Duleep and Regets (2002) incorporate the proportion of source-country human capital that transfers to the production of new, destination-country human capital.
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Duleep, H., Regets, M.C., Sanders, S., Wunnava, P.V. (2020). The Immigrant Human Capital Investment Model. In: Human Capital Investment. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-47083-8_4
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